PayPal gives Citi a consumer twist for gig economy clients

Digital technology is increasingly connecting compensation and payment capabilities for contractors and creating an ability to share apps. It's a trend that’s brought Citi and PayPal together to offer flexibility and a network effect to counter fintechs.

Citigroup and PayPal have extended an existing partnership to support a direct link between Citi's institutional clients and PayPal accounts. The collaboration can enable B2C payments for groups of users that are accustomed to using a combination of B2B and P2P rails, providing a range of disbursement options that's long been the goal of original digital P2P apps such as the bank-supported Zelle.

“PayPal is a large wallet provider for consumer payments,” said Kunal Bist, managing director and global head of cross-border solutions at Citigroup, adding the bank also supports transfers via other systems such as Zelle. “We are looking to build connections to many institutions as desired by consumers.”

Citi’s network of multinational corporate clients, financial institution partners and public sector organizations will Citi to make payments directly into their customers’ PayPal digital wallets through Citi’s Worldlink cross-border payments platform. PayPal’s clients will have access to funds faster.

The bank can also gain scale from PayPal’s 300 million consumers and access to merchants in more than 200 markets. Citi is positioning the collaboration, which will go live in early 2020 in more than 200 markets, as a way to sell its clients on adopting flexible options as consumer payment preferences change. The bank is arguing the broader digitization of personal, professional and business experiences need to be executed within a single experience.

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“The P2P apps want to support refunds, rebates, claims payments, anything from business to a consumer,” said Richard Crone, a payments consultant. “What’s unique about this announcement is Citi can do this on a global basis. Any Citi treasury customer can tap into this new offering and send a refund, a settlement, or a remittance instantaneously.”

A potential link to Venmo through PayPal provides an extra benefit, Crone said, adding it gives a social element to the disbursements.

Zelle has spent the past few years building bank and consumer users in anticipation of adding different types of payments to its P2P rails, such as insurance payouts. Fintechs in the past year have continued to draw investment to serve a range of use cases, including innovation that makes it easier for gig economy workers to access, manage and spend money, particularly if they are in a different country than their employer.

By combining forces, PayPal and Citigroup can add flexibility for cross-border payments to counter firms such as Payoneer and TransferWise. TransferWise has added partnerships with financial institutions to give users the ability to initiate transfers without leaving the financial institution's mobile app. And Payoneer just added B2B to its core gig economy payment service. Other gig economy firms such as Tipalti have also drawn investment to diversify.

“Expectations for gig economy growth over the next decade are pretty high,” said Steve Murphy, director of the commercial and enterprise payments advisory group at Mercator, adding Citi is one of the largest global corporate banks in the industry. “It’s good for PayPal’s access to corporates. And PayPal has lots of global clients, so it’s good for Citi to head off disintermediation as these other fintechs try to get into the B2B space.”

The Citi/PayPal collaboration also takes advantage of diversification of Citi's treasury payments unit. Citigroup’s Treasury and Trade Solutions early in 2019 started to move beyond B2B payments into merchant acquiring, providing a competitive response to the large technology firms and fintechs that have dominated that part of the payments market. The Treasury and Trade Solutions unit more recently added Citi Global Collect, a collaboration with the bank’s Trade and Foreign Exchange unit to add local payment processing, FX tools and account management.

“Our clients need to make payments to various beneficiaries around the world,” Citigroup's Bist said.